New York’s public pension system is projecting a modest decline in employer contribution rates for most state and local government workers in 2028, while costs for police and fire pensions are expected to climb again as faster salary growth, elevated retirements and benefit changes continue to put upward pressure on the system.
The New York State and Local Retirement System’s chief actuary is recommending an average employer contribution rate of 17.3% of payroll for the Employees’ Retirement System, down from 17.6% for bills due in 2027. The average rate for the Police and Fire Retirement System is projected to increase from 36.5% to 37.4%.
The rates would apply to the actuarial valuation beginning April 1, 2026 and would affect bills paid Feb. 1, 2028 by participating local governments and March 1, 2028 by New York state. Actual rates differ among employers depending on the retirement plans covering their workers, so the statewide averages don’t translate directly into the pension bill for an individual county, city, town, village or school-related public employer.
The findings are contained in the retirement system’s 2026 annual report on actuarial assumptions, prepared by Chief Actuary Aaron Schottin Young for state Comptroller Thomas DiNapoli. The report recommends leaving all of the system’s major economic and demographic assumptions unchanged after examining investment performance, inflation, wage growth, retirements, disabilities, employee departures and mortality during the latest fiscal year.
ERS rate dips while police and fire rate climbs
The divergence between the two major retirement systems is one of the clearest findings in the report.
The Employees’ Retirement System, or ERS, covers most state and local government workers outside police and fire plans. Its projected average employer contribution rate falls three-tenths of a percentage point, from 17.6% to 17.3%.
The Police and Fire Retirement System, or PFRS, moves in the opposite direction. Its projected average rate rises nine-tenths of a percentage point, from 36.5% to 37.4%.
Those figures represent the percentage of covered payroll an average employer would contribute toward pension costs, not a percentage increase in the employer’s total pension bill.
The report’s gain-and-loss analysis shows several competing factors behind the changes.
Recently enacted benefit improvements are estimated to add 0.6 percentage points to the ERS rate and 0.8 points to PFRS.
Investment performance provides relief, lowering the projected ERS rate by 0.4 percentage points and the PFRS rate by 0.1 points after the retirement system’s smoothing method accounts for gains and losses over multiple years.
Other demographic and administrative factors ultimately push ERS down while adding to PFRS.
The result is a net decline of 0.3 points for ERS and a 0.9-point increase for PFRS.
Police and fire salaries grew much faster than expected
Salary growth was one of the most significant areas where actual experience departed from the system’s assumptions.
ERS salaries increased 6.02% during the fiscal year ending in 2026, compared with an expected increase of 5.33%.
The difference was much larger in PFRS.
Police and fire salaries increased 9.61%, compared with a 6% assumption.
The actuary said salary experience has been volatile and is exerting upward pressure on employer rates because higher pensionable salaries can translate into larger future retirement benefits.
The system nevertheless isn’t changing its salary assumptions this year.
The ERS salary scale was updated as part of the 2025 valuation using experience from 2016 through 2025. The PFRS salary scale hasn’t been revised since 2021, and the report says another year of unusually volatile results doesn’t provide enough clarity to justify a new assumption.
The actuary instead recommends continued monitoring and says the PFRS assumption could be revisited before the next comprehensive five-year experience study in 2030.
The report also warns that pensionable overtime could create additional salary-related losses next year.
Recent benefit changes increased the amount of overtime that can be counted toward pensionable compensation for Tier 5 and Tier 6 members. The actuary did not make an adjustment for what the report describes as a possible one-time spike in pensionable earnings.
Public safety workers retired faster than expected
Retirement behavior also differed sharply between workers in traditional age-based retirement plans and those covered by service-based plans common among police, firefighters and correction officers.
ERS members in age-based plans retired more slowly than expected.
The system recorded 15,914 service retirements among the population studied, compared with 19,026 expected, producing an actual-to-expected ratio of 0.84.
Service-based plans showed the opposite result.
There were 2,130 service retirements compared with 1,499 expected, an actual-to-expected ratio of 1.42.
Several public safety plan groups ran considerably above assumptions.
State correction officers in 25-year plans recorded 531 retirements against 343 expected. Twenty-year plans recorded 1,306 retirements against 876 expected.
The report says some of the correction officer increase was associated with the 2025 prison strike and the period surrounding it.
About 100 more correction officer retirements occurred during the first three months of the fiscal year than during the same period a year earlier. Removing those excess retirements would reduce the actual-to-expected ratio for that group, though retirements would still remain above assumptions.
The actuary said service retirement rates in many 20-year plans also continue to exceed expectations but are more consistent with the pattern seen during the previous five years.
The system raised those retirement assumptions in 2025 and is recommending no further change for now.
Correction officer strike also distorted withdrawal numbers
The 2025 correction officer strike had another measurable effect on the retirement system’s experience: employee withdrawals.
Workers in age-based plans left state and local government employment at lower rates than expected. The system recorded 36,858 withdrawals against 48,409 expected.
Correction officers in service-based plans moved dramatically in the other direction.
The system counted 1,979 withdrawals among roughly 20,000 correction officer exposures, compared with only 535 expected.
The report attributes much of that gap to the strike, which resulted in the reported dismissal of about 2,000 correction officers. Approximately 900 later returned to their jobs.
Removing 1,100 strike-related withdrawals lowers the correction officer actual-to-expected ratio from 3.70 to 1.64.
That is still above the assumption, but much closer to the experience of other service-based workers such as police officers, firefighters and deputy sheriffs.
The actuary is recommending no immediate change to withdrawal assumptions.
Disability claims remain elevated in service-based plans
Disability retirement was another area showing a split between ordinary age-based workers and employees in service-based plans.
Age-based plans recorded 482 disability cases, including later benefit inceptions, compared with 565 expected.
Service-based plans exceeded expectations in all three disability categories measured.
Ordinary disabilities totaled 29 compared with 18 expected.
Accidental disabilities totaled 193 compared with 118 expected.
Performance-of-duty disabilities reached 335 compared with 202 expected.
Those results produced actual-to-expected ratios ranging from 1.62 to 1.66.
The system increased disability assumptions last year to better reflect the eventual number of disability benefit awards. The latest report concludes one additional year of experience isn’t enough to justify another adjustment.
Pension fund investment return reached 11.9%
Investment performance provided some relief to employers.
The New York State Common Retirement Fund earned 11.9% during the fiscal year ending March 31, 2026, compared with the retirement system’s 5.9% assumed rate of return.
Longer-term returns also remain above the assumption.
The fund’s annualized return was 6.8% over five years, 9% over 10 years, 8.4% over 15 years and 7.3% over 20 years.
Since the pension system’s 2021 market-value restart and implementation of eight-year asset smoothing, investment performance has exceeded the 5.9% assumption overall.
The report says those gains are putting downward pressure on employer billing rates.
But employers don’t receive the full benefit of a strong investment year immediately.
NYSLRS recognizes unexpected investment gains and losses over eight years to reduce large annual swings in pension contributions. That means both strong and weak market years continue affecting future employer bills long after the year in which they occurred.
The report recommends keeping that eight-year smoothing approach.
Fund assets rise to $294 billion
The report lists the retirement system’s fair value of assets at approximately $294.4 billion for 2026, up from $273.1 billion a year earlier.
Its actuarial value of assets, which reflects the smoothing methodology used for employer funding calculations, stood at about $284.1 billion.
The system’s accrued liability under the valuation method was approximately $307.5 billion.
For financial reporting purposes, the pension system’s GASB 67 ratio was 96.8%, up from 92.2% in 2025.
That ratio compares the fair value of pension assets with total pension liability. It is a financial reporting measure rather than the only measure of the system’s funded condition.
The report also projects fair-value assets reaching $314.3 billion in 2027.
Inflation assumption stays at 2.9%
Despite continued inflation uncertainty, the system isn’t changing its long-term inflation assumption.
The recommendation remains 2.9%.
The actuary reviewed several measures and forecasts.
Inflation measured using the chained Consumer Price Index averaged 2.31% annually over the previous 20 years but 4.23% over the previous five.
Market expectations derived from Treasury securities ranged from roughly 2.2% to 2.5% depending on maturity.
The retirement fund’s investment division uses a 2.5% inflation assumption when forecasting asset performance.
An actuarial stochastic model, meanwhile, projected a 30-year annual inflation rate of 3.15%, with a median result of 2.89%.
The report concludes that some indicators support an assumption below 2.9%, while more complex long-term simulations support keeping it near its current level. Near-term inflation is also expected to remain above the assumption.
The corresponding pension cost-of-living adjustment assumption remains 1.5%.
Under state law, eligible NYSLRS retirees receive a COLA equal to half the increase in the Consumer Price Index, subject to a 1% minimum and 3% maximum. The adjustment applies to the first $18,000 of an eligible pension benefit.
Investment return assumption remains 5.9%
The system is also maintaining its 5.9% liability discount rate, which closely tracks the assumed long-term investment return.
That assumption is crucial because small changes can dramatically affect estimated pension liabilities and employer rates.
The report illustrates the sensitivity.
At the current 5.9% assumption, the projected 2028 average contribution rate is 17.3% for ERS and 37.4% for PFRS.
If the assumed return were reduced to 5.4%, the estimated rates would rise to 23.6% for ERS and 46.7% for PFRS.
At a 4.9% return assumption, they would climb to 30.3% and 56.6%, respectively.
At the other end, a 6.9% assumption would reduce projected rates to 5.3% for ERS and 20.1% for PFRS.
The report argues that 5.9% remains a prudent assumption given the retirement system’s investment strategy, cash flow needs and maturity.
Pension system is becoming more mature
The report also highlights a longer-term issue that could make future market swings more consequential.
NYSLRS is becoming an increasingly mature pension system, meaning more of its obligations are tied to retirees rather than active workers.
In ERS, liabilities associated with retirees and beneficiaries represented 61% of total accrued liabilities in 2026, compared with 21% in 1985.
In PFRS, the share reached 67%, compared with 20% in 1985.
That matters because a mature pension system has a smaller active payroll base available to absorb losses if investments underperform.
The system is also paying substantially more in benefits than it receives through employer contributions.
In 2026, employers contributed about $7.14 billion and employees contributed another $1.07 billion, while benefit payments totaled roughly $17.07 billion.
The fund therefore relies heavily on investment income and accumulated assets to pay benefits.
The actuary stresses that the resulting negative cash flow isn’t evidence of immediate financial distress. It is expected in a mature, well-funded pension plan that accumulated assets specifically to pay benefits later.
But it does make investment performance increasingly important.
Benefit changes push costs higher
The report also accounts for several recent benefit changes.
Tier 6 employee contribution requirements have been reduced, while the allowable amount of overtime included in pensionable compensation has increased for Tier 5 and Tier 6 members.
Benefits for some state workers were also expanded.
The state eliminated the so-called “death gamble” for correction officers, allowing the pension reserve to be paid after the death of an active member who was eligible to retire.
Certain State Police employees who aren’t troopers can now receive pension accruals for as many as 35 years of service instead of 32, and their member contribution requirements were brought in line with other plans.
The retirement system also updated its methodology for estimating World Trade Center-related death benefits for current and future retirees with approved WTC notices.
Taken together, benefit improvements account for part of the upward pressure built into the 2028 employer rates.
What employers should expect in 2028
For most municipalities and public employers participating in ERS, the statewide average points to slightly less pension pressure in 2028 than in 2027.
For employers with police and fire employees, the direction remains upward.
The PFRS average rate has increased from 27% for 2023 bills to 27.8% in 2024, 31.2% in 2025, 33.7% in 2026, 36.5% in 2027 and a projected 37.4% in 2028.
ERS has also risen substantially from its 2023 low of 11.6%, but the projected decline from 17.6% to 17.3% would interrupt several years of increases.
Those average rates won’t determine what any single local government pays. Employer bills depend on payroll, employee retirement plans, membership tiers and other plan-specific factors.
The chief actuary’s broader conclusion is that the assumptions themselves don’t need to change after one year of experience.
Instead, the system is entering the next several years with several trends to watch: faster-than-expected public safety salaries, elevated retirements and disability claims in service-based plans, the effects of expanded pension benefits and the growing sensitivity of a mature pension fund to investment performance.
If those patterns persist, the report says they could become candidates for actuarial changes before or during the next comprehensive experience study scheduled for 2030.
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